Is Inflation Hitting Bitcoin?

Bitcoin is supposed to be insulated from inflation.  Because there is a predetermined limit to the number of Bitcoins that can be created (21 million), Bitcoin supposedly should not be subject to anything like the monetary actions of governments, which can inflate fiat currencies by printing more money.  There was an operational problem in August 2010, when someone created 184 million Bitcoins in a single transaction.  But this transaction was voided and the operational problem dealt with.  Thus, the 21 million coin limit was preserved.

Nevertheless, Bitcoin is subject to inflation risk.  Inflation results from increasing the amount of a currency.  Although the number of Bitcoins is limited, the number of digital alternatives to Bitcoin is not.  Other cryptocurrencies, such as Ethereum, can be created with relative ease.  There are few barriers to entry.  Some 1100 cryptocurrencies now exist.  Among them is Bitcoin cash, created by the Bitcoin community with features that make it easier than Bitcoin to use for transactions.  The Bitcoin community also created Bitcoin gold, a cryptocurrency created to facilitate decentralized mining (Bitcoin itself is now dominated by a small number of large miners).  As these alternatives proliferate, the value of Bitcoin can fluctuate wildly.

So far, Bitcoin has recovered from its sharp drops, and continued an overall upward trend in value.  But volatility attracts fast money, and cash seems to be flowing into the Bitcoin market for speculative purposes.  This may not end well.  Hot money never stays in one place for long.  With all the alternatives to Bitcoin, and the low barriers to entry for more, numerous other venues for volatility and speculation are or will become available.  Speculators will stampede to whatever market appears to offer larger and quicker profits.  The effect on Bitcoin could be similar to inflation.  As cash flows away from Bitcoin, its value will diminish.  Pause and think before you buy Bitcoins.